When you’re dealing with the Foreign Exchange Market there are many things to factor into your method and trading strategy. First and foremost, you need to be properly educated on not just the contracts you’re interested in but the market itself as well. Unfortunately, no matter how much you’ve read or how efficient your personal trading plan seems to be there are mistakes and pitfalls in this market that can take down even the most well rounded trader if you’re not careful. There may not be any one hundred percent guaranteed guides that can take you through any situation you might encounter, but if you know what to look out for then you’re much more likely to get through the majority of possible problems unscathed and ready to continue. For a few ways you could be setting yourself up for failure without realizing it, read on below.
Forgetting To Change As The Market Changes
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One of the worst things you can do as a trader is underestimate the volatility of the market and forget to evolve as it changes. It isn’t enough to have a personal plan where your portfolio is concerned and have stop losses in place in case your trade flops, you’ve also got to be ready to alter that plan if something suddenly isn’t functioning the way that it should be. Investopedia writes:
Conducting scenario analysis and planning the moves and countermoves for every potential market situation can significantly reduce the risk of large, unexpected losses.
You might not be able to predict what the market is going to do next, but you can certainly take a guess at a few of the different directions it might go and make yourself a plan for each of these alternate routes. You’ll find that no matter how successful your strategy has been in the past; eventually there will come a time when it’s just not going to reap the results you’re looking for. That’s when you’ll need to implement one of these secondary plots in order to gain back some of your loss.
Learning By Trial
In life, there are some things you need to learn by doing, and while it’s true that you’ll build more skill in trading by getting in there and gaining some hands on experience, when the Forex is involved you should keep this trial learning to the demo realm. Don’t jump into the market if you’re still trying to figure out how everything works; trying and failing is a great method of educating yourself in low risk procedures, but when you’ve got cash on the line, it can make for a very expensive learning experience. You’ll wind up frustrated and losing your enthusiasm.
Being Afraid To Cut And Run
Plenty of traders, even the seasoned ones, sometimes make the mistake of getting comfortable in their success once it starts rolling in. It can be easy to make the assumption that things will get better in a failing trade if previously you’ve found that the market has turned around in your favor. Unfortunately, this isn’t something that happens for everybody or on every trade and currency is constantly fluctuating, which means that from time to time you just need to know when to call it quits. Dailyfx.com explains:
We naturally want to hold on to losses, hoping that “things will turn around” and that our trade “will be right”. Meanwhile, we want to take our profitable trades off the table early, because we become afraid of losing the profits that we’ve already made.
Of course, another flaw some traders encounter is drawing the line too quickly, so it’s important to do your research and decide if it’s worth it to remain on a trade for just a little while longer, or if it’s too far gone to save and you’re going to lose money.
Relying On “Proven” Methods
There’s no proven method for trading on any market, let alone the Foreign Exchange, which is why relying on these guides put together by pros in the field is an easy way to set yourself up for failure. It’s okay to take advice, or study other trader’s playbooks in order to find your own unique balance, but taking these strategies as literal “how to” guides will not get you very far. Similarly, these scientific methods out there for deciphering which way the market will turn are never guaranteed for success. Etoro.com advises:
Use Gann and Fibonacci as a part of your technical analysis but not as a scientific method to predict the market.
As an investor you need to find your own balance in order to get the most out of the market. Remember that there’s always a risk involved even in something that looks to be safe, so be prepared to change direction and use different strategies in various situations to get you where you need to be.
Getting Caught Up In The Trade
Finally, a sure fire way to fail in the Forex is by getting yourself too caught up in the emotions that come along with your trades. This can happen whether you’re getting positive or negative results, whether you want it to or not. It’s so easy to get tied up in the frustration that comes with losing money, that hopping right back into a trade without thinking about it almost feels natural. You’ve got to fight that feeling and hold on until you’ve calmed down and accepted the loss before climbing back into the saddle. Similarly, if you have taken a big gain, don’t think that makes you invincible; you can make poor choices by believing that you can’t lose and wind up taking a loss bigger than what you’ve managed to gain on a previous trade, so be careful. Learntotradethemarket.com reminds:
Traders need to be especially aware of their state of mind immediately after exiting a trade, because this is when emotions like revenge and euphoria hit their peak.
A good rule to follow is take a break between trades, whether you’ve come out on top or on bottom. Give yourself a few days, or at least a few hours to cool off and recharge before you dive back in.
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